U.S. Apartment Rents and Occupancies Seen Set to Rise

Apartment rents and occupancies are likely to continue to rise as the U.S. home and labor markets remain depressed, economists said at a conference sponsored by investment-advisory firm Bentall Kennedy.

“There are fewer jobs today than 10 years ago,” said Doug Poutasse, head of North American strategy and research at Toronto-based Bentall Kennedy, which oversees $23 billion of real estate assets. “There has been a tremendous demographic shift.”

U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand for rentals, according to Reis Inc. Job prospects in the U.S. weakened in April for the first time in seven months, a sign that employers may add fewer workers to payrolls in the second half of 2011.

An estimated 4 million to 4.5 million people per year in their 20s and early 30s are entering the housing market at a time when 28 percent of American homeowners with mortgages owe more than their houses are worth, Poutasse said yesterday at the conference in Vancouver. So-called echo-boomers desire mobility and see properties with negative equity as a hindrance to selling and moving elsewhere, he said.

“This generation isn’t going to behave the same way with housing,” Poutasse said.

Three-fourths of U.S. cities had declines in home prices in the first quarter, according to the National Association of Realtors. The decrease in prices has turned homeownership from a source of financial security to a burden for many people, said speakers at the conference.

‘Source of Risk’

“Now it’s the source of risk,” said Karl Case, professor emeritus of economics at Wellesley College and co-creator of the Standard & Poor’s/Case-Shiller home-price indexes.

While the decline in prices has made buying relatively more attractive than at the market’s peak, qualifying for a mortgage is now more difficult, the economists said. Loan costs also are poised to increase, they said.

“Interest rates are likely to rise a lot because the economy is expanding,” said Ray Fair, an economics professor at Yale University. “Within a year, inflation is going to be higher than the market thinks.”

Inflation may help the balance sheets of government-owned mortgage buyers Fannie Mae and Freddie Mac while hurting consumers, Case said.

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